This Policy Statement has been modified and superseded by PS 94(8.1)
Aircraft Chartering and Flight Instruction Services
PURPOSE: This Policy Statement describes the proper application of sales and use taxes to aircraft chartering and flight instruction services.
BACKGROUND: Conn. Gen. Stat. §12-407(2)(i)(L) includes in the definition of "sale" and "selling" flight instruction and chartering services by a certificated air carrier on an aircraft, the use of which for such purposes, but for the provisions of Conn. Gen. Stat. §§12-410(4) and 12-411(12) would be deemed a retail sale and a taxable storage or use, respectively, of such aircraft by such carrier.
Subsection (b) of Conn. Gen. Stat. §12-410(4) provides an exception to the general rule for purposes of the resale exclusion from the sales tax, prohibiting any use of tangible personal property purchased under the resale exclusion other than retention, demonstration or display. The exception states that:
...any use by a certificated air carrier of an aircraft for purposes other than retention, demonstration or display while holding it for sale in the regular course of business shall not be deemed a retail sale by such carrier as of the time the aircraft is first used by such carrier, irrespective of the classification of such aircraft on the balance sheet of such carrier for accounting and tax purposes.
Subsection (b) of Conn. Gen. Stat. §12-411(12) provides a similar exception to the general rule for purposes of the use tax, which prohibits making any storage or use of property purchased under the resale exclusion other than retention, demonstration or display while holding it for sale.
A certificated air carrier is defined in Conn. Gen. Stat. §12-407(22) as:
a person issued a certificate or certificates by the Federal Aviation Administration pursuant to Title 14, Chapter I, Subchapter G, Part 121, 135, 139 or 141 of the Code of Federal Regulations or the Civil Aeronautics Board pursuant to Title 14, Chapter II, Subchapter A, regulations may hereafter be amended or reclassified.
STATUTORY AUTHORITY: Conn. Gen. Stat. §12-407(2)(i)(L); Conn. Gen. Stat. §12-410(4); Conn. Gen. Stat. §12-411(12); 49 U.S.C. Appx. §1513.
APPLICATION OF SALES AND USE TAXES TO CHARTERING SERVICES: Conn. Gen. Stat. §12-407(2)(i)(L) provides that chartering services are included in the definition of "sale" and "selling" only when rendered by (i) a certificated air carrier (ii) on aircraft qualifying for resale treatment under Conn. Gen. Stat. §12-410(4) or 12-411(12).
Generally, Conn. Gen. Stat. §12-410 provides that any use of a service or property purchased on a resale basis other than retention, demonstration or display while holding it for sale in the regular course of business invalidates the resale exclusion, subjecting the service or property to tax at the time of such use. However, Conn. Gen. Stat. §12-410(4)(b) provides an exception to that rule, by which the resale exclusion is allowed when an aircraft is used by a certificated air carrier for purposes other than retention, demonstration or display while holding such aircraft for sale in the regular course of business.
Therefore, if the chartering services are not being provided by a certificated air carrier on an aircraft being held for sale (including leasing) in the regular course of business, such services are not taxable under Conn. Gen. Stat. §12-407(2)(i)(L).
When a certificated air carrier does not own an aircraft, but pays a fee to an owner (who is not a certificated air carrier) for the use of an aircraft in a chartering service, the charges for charter service by such air carrier are not taxable under Conn. Gen. Stat. §12-407(2)(i)(L) because the aircraft is not held for sale (or lease) by a certificated air carrier. The fee paid by the certificated air carrier to the owner is taxable under Conn. Gen. Stat. § 12-407(2)(j) as being for the leasing or rental of tangible personal property. While the owner of the aircraft may purchase it on resale, the rental fee paid by the air carrier to the owner does not qualify for resale treatment under Conn. Gen. Stat. §12-410(4)(b) because the aircraft is not being held for sale (or lease) by the air carrier in the regular course of business. (However, if an owner that is not a certificated air carrier holding the aircraft for sale in the regular course of business uses such aircraft itself, the owner loses the resale exclusion and must pay Connecticut use tax on the purchase price of the aircraft at the time of such use.)
DEFINITION OF "CHARTERING SERVICES": For purposes of Conn. Gen. Stat. §12-407(2)(i)(L), chartering services are air transportation services that are exclusive to the customer of the chartering service provider and are not offered to the general public (except for "open" flights, described below). In a chartering service, the customer defines the origin, destination and schedule of the flight, and the customer has control over whether a flight is "open" or "closed" (i.e., whether or not the air carrier can fill up leftover space on the flight by offering such space to the public).
NOTE: States are preempted by federal law (49 U.S.C. Appx. §1513) from taxing interstate or international air transportation. Interstate air transportation, overseas air transportation and foreign air transportation are defined in 49 U.S.C. Appx. §1301(24) as:
the carriage by aircraft of persons or property as a common carrier for compensation or hire ... in commerce between, respectively -- (a) a place in any State of the United States, or the District of Columbia, and a place in any other State of the United States, or the District of Columbia; or between places in the same State of the United States through the airspace over any place outside thereof; or between places in the same Territory or possession of the United States, or the District of Columbia; (b) a place in any State of the United States, or the District of Columbia, and any place in a Territory or possession of the United States; or between a place in a Territory or possession of the United States, and a place in any other Territory or possession of the United States; and (c) a place in the United States and any place outside thereof; whether such commerce moves wholly by aircraft or partly by aircraft and partly by other forms of transportation.
Therefore, the term "chartering services" for purposes of Conn. Gen. Stat. §12-407(2)(i)(L) includes only intrastate flights, which are flights wholly within Connecticut.
Charges for services or activities incidental to the actual chartering service, such as parking or de-icing the aircraft or pilot layover or waiting time, are includable in the measure of sales and use taxes, whether or not separately stated.
Chartering services may be contrasted with a "scheduled air charter system," whereby the air carrier is responsible for meeting deadlines with respect to its customers' shipments. A scheduled air charter system is not exclusive to one customer, and the air carrier has sole discretion over the aircraft selection and the flight origin, destination and schedule. An example of such a system is the priority shipment of cargo, such as commodities or documents, by set deadlines in a published schedule that is made available to the public.
Chartering services may also be contrasted with outright leases. The Internal Revenue Service differentiates between "dry" and "wet" leases for purposes of applying the tax on aviation fuel (26 U.S.C. §4041) or the tax on transportation of persons or property by air (26 U.S.C. §4261). As described in Technical Assistance Memorandum 7835009 (May 25, 1978), a "wet" lease is one where the lessor of an aircraft provides the flight crew to the lessee, and thus does not transfer complete possession, command and control of the aircraft to the lessee because it is the lessor's crew that retains ultimate responsibility for the safe operation of the aircraft. A "dry" lease is when the lessee provides its own flight crew for the leased aircraft. For purposes of the Connecticut sales and use taxes, a "wet" lease is considered to be a chartering service, whereas a "dry" lease is considered to be the rental of tangible personal property.
FLIGHT INSTRUCTION SERVICES: As with chartering services, flight instruction services are taxable under Conn. Gen. Stat. §12-407(2)(i)(L) only if (i) rendered by a certificated air carrier (ii) on an aircraft being held for sale in the regular course of business. Any other flight instruction services are not taxable. Conn. Gen. Stat. §15-34(2) defines air instruction as "the imparting of aeronautical information by any aeronautics instructor or in or by any air school or flying club." Charges for ground school, if separately stated, are not taxable because such instruction does not take place on an aircraft as specified by Conn. Gen. Stat. §12-407(2)(i)(L).
SOURCING: Only intrastate chartering services are subject to Connecticut sales and use taxes. Thus, a chartering service is taxable if the flight both originates and terminates in Connecticut, whether or not charges are billed to a customer or account in Connecticut. A flight originates when the passenger boards the aircraft and terminates when the passenger disembarks from the aircraft at his or her destination. If a flight both originates and terminates within Connecticut, but leaves Connecticut airspace during the flight, the flight is not an intrastate flight and is not taxable. If a flight originates in Connecticut, goes to a destination outside Connecticut, where the original passengers disembark and new ones board, and the flight then returns to Connecticut, there are two separate transactions. The first transaction is the flight originating in Connecticut and terminating outside Connecticut, and the second transaction is the flight originating outside Connecticut and terminating in Connecticut. Because neither transaction is an intrastate chartering service, neither one is subject to tax.
A flight instruction service is subject to Connecticut sales and use taxes if the flight school at which the students are trained, and from which the aircraft on which instruction is given takes off, is located in Connecticut.
Where the requirements of Conn. Gen. Stat. §12-410(4)(b) for the resale exclusion are not met, and an air carrier is deemed to be making a taxable purchase by renting an aircraft (as discussed supra), the applicable sourcing rule is set forth in Conn. Agencies Regs. §12-426-25(h), which discusses rentals of tangible personal property. Such rentals are taxable at the place where delivery of the rented property is taken or at the location where the leased property is intended to be used and actually is used. In the case of rented aircraft, "delivery" is taken by the air carrier where it takes possession of the aircraft; the location where the passengers are boarded or cargo is picked up, or of the flight school, is irrelevant.
EFFECTIVE DATE: Because this statement corrects a previous position of the Department, this Policy Statement is applicable to all open periods.
EFFECT ON OTHER DOCUMENTS: The first paragraph of Ruling No. 89-236 is superseded. In addition, any correspondence from the Department which is not in accord with the interpretation of Conn. Gen. Stat. §§12-407(2)(i)(L), 12-410(4) and 12-411(12) in this Policy Statement should no longer be relied upon.
EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current Department policy or practice affecting the liability of taxpayers. Unlike a Letter Ruling, a Policy Statement does not apply a policy or practice to a specific set of facts but it may be referred to for general guidance by taxpayers. Unlike a Special Notice, it does not announce a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions.
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Sales and use taxes